Harrisburg gets new recovery plan, incinerator claims planned

August 26, 2013|Reuters

By Hilary Russ

Aug 26 (Reuters) - The state-appointed receiver forHarrisburg, Pennsylvania, said on Monday he wants to pursueclaims against some individuals involved in transactions forincinerator upgrades that left the city drowning in more than$362 million in debt.

That's just one tactic receiver William Lynch laid out inhis new plan to rescue the cash-strapped city without having tofile for bankruptcy.

Harrisburg, Pennsylvania's capital, filed for protection from creditors in 2011, but the case was thrown out after statelawmakers banned it.

"We believe this recovery plan will not only addressHarrisburg's past financial difficulties and substantial debt,but also open the door for future growth, development andfinancial stability," Pennsylvania Governor Tom Corbett said ina statement after the plan was released.

He said he hoped that the cooperation that led toHarrisburg's plan could serve as a model for other financiallydistressed local governments.

Lynch named no names in the court filing on Monday. But thelist of advisers, officials and others associated with aquestionable 2007 bond deal is a long one. The transactionfinanced a retrofit of the city's troubled trash incinerator.

Many in Harrisburg have clamored for someone to be heldaccountable for the seemingly bad deal. Earlier this month,Pennsylvania Attorney General Kathleen Kane told thePatriot-News that she was pursuing a criminal investigation intothe deal after the county prosecutor referred the case to heroffice.

"The public expects that there be a means to obtain redressfor these ill-fated decisions if there is evidence to supportthe allegation that highly imprudent actions were taken by thosecharged with protecting the City and its taxpayers against thesevery types of circumstances," Lynch wrote.

A 2012 forensic audit of the incinerator upgrades laid outmost of the main players involved in deal making.

Andrew Giorgione, at the time a key attorney advising theHarrisburg Authority and the city on the waste facility,according to the audit, did not reply to an email request forcomment.

Financial adviser Public Financial Management also did notreply to a request for comment.

Lynch said he would use settlement talks or, if necessary,lawsuits, to target "professionals or entities" with incineratorclaims.

He will seek out people alleged to be responsible for theauthority's "imprudent determination" for a retrofit "at greatexpense and with enormous potential financial exposure," he saidin the filing.

He also plans to target those involved with the city'sdecision "to financially expose itself to serious liabilities"when it agreed to backstop the authority's undertaking.

PART OF A BIGGER PLAN

Lynch's move is only a small part in his much bigger plan torevive the city's finances.

The city is banking on selling the incinerator to theLancaster County Solid Waste Management Authority for between$126 million and $132 million, according to the revised recoveryplan.

The purchase price is based in part on borrowing, and itwill drop if interest rates in the U.S. municipal bond marketkeep rising and pushing up those borrowing costs for theauthority. The incinerator is about 800 to 900 percentover-leveraged, according to the filing.

The plan also lays out certain settlements with the city'screditors, including general obligation bond insurer AmbacAssurance Corp.

Ambac has been paying GO bondholders since March 2012, whenthe city defaulted on its debt service. The city also missed aMarch payment, and will miss September's scheduled paymentunless the court confirms the new plan, the filing said.

Altogether, those defaulted payments would total more than$17 million, Lynch said.

Ambac agreed to let the city stretch out its bond repaymentschedule for up to 10 more years.

In addition to reaching settlements with creditors andselling the incinerator, the city's financial recovery dependsin part on its ability to sell nine public parking garages andfour public parking lots.